$5 trillion investor coalition proposes framework to assess developing nations’ ESG scores more fairly
A $5 trillion investor coalition, spearheaded by the Church of England Pensions Board and the BT Pension scheme, has proposed a new framework for assessing the sustainability of government bonds. The Assessing Sovereign Climate-related Opportunities and Risk (ASCOR) project is intended to assess developing nations more fairly by exempting them from certain ESG standards.
The aim of this framework is to maintain sustainable outcomes without unduly penalising developing nations for not adopting unfeasible environmental standards of developed countries. This might include, for example, an exemption for developing nations from committing to phase out combustion-engine vehicles by 2035.
As the ‘loss and damage’ debate at COP27 illustrates, developing nations often face the brunt of climate change, but have so far received comparatively little ESG-minded investment to support the transition to net zero. Frameworks such as these may do well to alter this imbalance.
Last week British oil giant BP announced unprecedented profit levels from oil and gas as a result of large-scale energy disruption in 2022. While shareholders may be happy, this announcement was not well received amidst the current cost of living crisis which has seen energy prices increase almost three-fold in many countries over the course of the year.
To compound the issue, the Guardian also revealed that BP would be scaling back its climate goals in order to accommodate more extraction of oil, with Chief Executive Bernard Looney defending the move as a response to energy security concerns due to the war in Ukraine.
These announcements show that rather than transitioning out of polluting fossil fuels to combat the climate crisis, many companies have benefited from its continued prevalence. Notably however, the Wall Street Journal argued that even during a record year for oil and gas many investors are increasingly wary of the industry- perhaps anticipating regulatory crackdown in the near future.
New research has shown that half of the wetlands in Europe, the continental US and China have been permanently lost, a worrying blow to biodiversity in the world’s largest economies. Wetlands make an important contribution to the economy by protecting against floods and maintaining water quality. Wetlands sequester carbon similarly to other natural habitats, with one wetland storing 10,000 tonnes. They are also a vital habitat for wildlife worldwide as nearly 40% of all species live or breed there, making them an important conservation priority.
Policymakers and investors made wetlands an important pillar of their commitments at COP15, but findings such as these underscore the need for urgent action to protect these ecosystems which could be permanently lost if not maintained.
Investors can play a crucial role in protecting wetlands by pressuring companies on deforestation, which has been a key historical driver of wetland loss. As well as more systemic changes to prevent pollution that damages wetlands, policymakers can also introduce natural solutions of resedimentation to protect them.
In recent years, private investment in clean technologies within Europe has lagged behind other countries, as this graph shows. For policymakers and sustainable investors looking to transition the continent to cleaner sources of energy, the numbers are concerning
European leaders have begun working on a proposal for a substantial green investment program to promote new technologies and compete with America’s Inflation Reduction Act, which they fear may persuade green companies to relocate.
The inflation reduction act included over $300bn of direct subsidies and direct tax breaks which stimulated the sustainable investment sector significantly and decreased economic risks for green projects in 2022. If passed, the European counterpart could make a noticeable increase in the volume of green investments within the EU27.